Outlining a Problem

tabs · 07-30-2004, 12:50 PM

The Unidted States is fast approaching a day of reckoning with regards to Social Security and Medicare. If the proverbial something is not done to fix it, then a generation of Americans are going to be in for a rude awakening.

The problem has been that the people of the USa have become a nation of consumers instead of a nation of savers. The tax laws for least the last 40 years have promoted spending over saving. Along with a belief that the safety net of society would be there to catch their fall in old age.

All was fine until the need for cash to fund the social and military programs instituted in the 1960's started dipping into the cash reserves that were being built to fund the social safety net.

There are several things that can be done to help remedy the problem .

1. Is to make people more reliant on there own savings instead of Societial retirment programs.

A. Increase the amount of deductions for IRA's allowable in all their various forms, and to reduce the taxabiliity of the monies earned

B. Privatize at least a portion of a persons SS deductions...held as a government account...many annuities have a short list of investments which to choose from. over a 30 to 40 year career one has factored in several rises and falls in the securities markets and is going to be far ahead than if just relying on the standard SS benfit.

C. Decrease capital gain taxes...to make investing attractive. which will grow the economy.

D. Decrease the Dividend/Saving Accounts tax rate...let people keep more of the money that their wages which have allready been taxed earns.

E. Have pension plans will travel...

While none of thes ideas are novel, the idea is to make it in the best interest of the American people to save for their own futures as well as their families instead of relying on the government or pensiion plan to do it for U.

mikester · 07-30-2004, 01:28 PM

I think the best bet is to allow people to put more into IRAs and similar accounts (401k, 403b...etc). If you give them more of an incentive to save money for retirement (which lowers their taxable income) I think it'll have a better effect than lowering overall income taxes (which I think will just increase spending which IS good for the economy but not what you're after here).

Pensions are scary to me. Private companies can make very generous pension offers to people to get them to work for a company for 20 years but when that person retires and the fate of the company goes south.... The federal pension agency that guarantees (insures) the pensions has it's own guidlines. Those guidlines treat employees that earn under 50k the best but over that and under 65 (say you retired at 61) you'll get less than you earned.

State run pensions can be just as scary, during the boom of the early internet Orange County increased it's benefits package dramatically for retirees which is great on the surface but in the long run it has proved irresponsible. Now, our economic shrinkage and the budget problems in CA overall the OC can't afford to keep up the benefits and it now looking at a cut back.

Investments are scary too for the more obvious market fluctuations but at least then YOU are responsible for the decisions made. I'm not sure that's good or bad.

Being in the govt sector myself I have a pension plan (if I stay with it) but I do plan on contributing as much as I can to my existing retirement via IRA or 403b.

widebody911 · widebody911's Garage

I agree on raising the IRA contribution limits.

nostatic · nostatic's Garage

Can anyone explain to me why the IRA contribution is so low? What the hell can $3K/year get you?

Unfortunately all of my retirement is tied up in TIAA/CREF. If they go belly up I'll be bumming. Guess its time to diversify a bit...

dd74 · 07-30-2004, 01:56 PM

Quote:

Originally posted by widebody911
I agree on raising the IRA contribution limits.

What is that limit? I knew a guy who was putting 18% of his paycheck in his 401K. Soon, he started to get taxed for it.

84porsche · 84porsche's Garage

I believe the IRA limit was $3k last year and $3.5k for those over 50. The 401(k) limit was $11k I believe but I would have to double check. It's been a few years since I have done tax work.

84porsche · 84porsche's Garage

Quote:

Originally posted by nostatic
Can anyone explain to me why the IRA contribution is so low? What the hell can $3K/year get you?

IRA is what it says individual retirement account and was invented to supplement Social Security. The contribution is technically unlimited. It is just that 3k is deductible on your taxes. It makes a big difference when you start one in you 20s vs starting in your 40s. Also you still have the option to put money in a 401(k) and roll over to an IRA without penalty.

The advantage to 401(k) vs. Traditional IRA is if you have employer matching however both are taxable at retirement age. Roth IRAs distributions are non-taxable at retirement.

304065 · 07-30-2004, 03:41 PM

Tabs, knock it off with all the making sense! Keep it up and there will be a coup.

tabs · 07-30-2004, 06:48 PM

Mother is getting the shock of her life...her idiot son making sense....Gawd forbid...it just might drive her to drink...and wanton excess.

qikcpa · qikcpa's Garage

hate to tell you. but self employed people can sock away substantialy more pretax. I have clients that regularly put away 50% of their W-2's with combination 401k/profit sharing plans. there are even vehicles out there called defined benefit plans (not defined contribution) which allow older self employeds to (based on actuarial estimates) put away in excess of 100% of their W-2's. A few years back I saw a realy old guy (like 53 or something) putting away $125,000 a year pre tax into a retirement plan.

campbellcj · 07-30-2004, 09:36 PM

We have a defined benefit plan and it is indeed heavily age-weighted and allows HUGE contributions; however, the paperwork and administrative burden is also huge. No joke, there are hundreds of pages of docs to deal with.

These plans are not limited/designed for the self-employed; they are traditional corporate pension plans and any company that can afford it could probably create one. Our plan saved us approx. $70K in taxes last year.

Defined contribution (profit sharing) plans are becoming far more common because the contribution levels are much lower and discretionary; also, a 401K component can be added to the plan to enable employee voluntary contributions.

I personally view social security and medicare as nothing more than taxes on current income, which is how the funds are being expended, after all. Our social security reserves have been plundered and the "retirement fund" is not really even there in real liquid terms! I do not count on anything gub'mint sponsored being there for me when I "retire" (which will hopefully be in 15 yrs or less, vs 30 yrs when the gub'mint says I should.)

Moneyguy1 · 07-31-2004, 08:17 AM

Feally old guy of 53...

Makes me feel truly ancient.....

Overpaid Slacker · 07-31-2004, 08:44 AM

Quote:

Gawd forbid...it just might drive her to drink...and wanton excess.

No ***** God Forbid... that's how we wound up with the first Tabby, and we don't need another!

JP

cmccuist · 07-31-2004, 09:32 AM

Back when Hillary was contemplating privatizing health care, she mentoined that there was $7 trillion dollars out there in 401k plans (a lot more today). She suggested "investing" that money in social programs and then paying it back when the people needed it for retirement. Jesse Jackson was also on board with that plan. WTF?!?!

The government is not always the solution to a problem. Whether there's a tax incentive or not, each one of us needs to decide how we want to live when we shut it down and plan accordingly.

My daughter is in medical school right now, the other one is going to law school starting in 2005 and my son plays the guitar.

Problem solved!